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# The Time Value of Money

### Future Value Calculation and Annuities

Your parents are planning to retire in 18 years. They currently have \$250,000. They supplement those dollars with an annual payment into a retirement account of \$20,000. What will be the value of all dollars if the funds can earn an interest rate of 5%? What will be the value of all dollars if the funds can earn an interest

### Calculating NPV and IRR for Investments

An investment requires an outflow of \$300,000 at time zero and another outflow of \$60,000 at the end of the first year. Net after-tax inflows for years 2, 3 and 4 are zero. After tax inflows in years 5, 6 and 7 are \$60,000, \$400,000 and \$400,000, respectively. The required rate of return is 17%. What is the Net Present Value of

### Cost of equity of Nike, Sony Corporation, and McDonald's Corporation

The cost of equity (discount rate) can also be determined by using the Capital Asset Pricing Model (CAPM). Calculating the cost of equity using the CAPM model is often more difficult than using the dividend discount model. The companies' financial statements do not show the cost of equity. The following table shows necessary

### Online Car Buying and Time Value of Money

Can you please help me with the following scenario? Thank you! With a click of the mouse, Mackenzie enters the auto "showroom." In the past few months she had realized that the repair costs for her 11-year-old car were accelerating. She thought it was time to start shopping for a new car online and decided to start her Inte

### Value of Equity - Bart Company

Bart Industries is about to be purchased by Kramer Enterprises. Both firms are in the rocks and mineral industry. As one of the founders of Bart Industries, you are concerned about the value of the equity in the firm. You have acquired the following data on your firm: 1. Bart has 200,000 shares of stock authorized, with 12

### Coping with Identity Theft

Don't Let Crooks Steal Your Identity: How to Protect Yourself—and Your Credit Rating In 2009 Consumer Sentinel, the complaint database developed and maintained by the Federal Trade Commission, received over 1.3 million consumer fraud and identity theft complaints. Consumers reported losses from fraud of more than \$1.7 bi

### Career Improvment

Which Job? Are You Sure? "Wow, you mean you have three job offers? How did that happen?" "I'm not quite sure, Joan," responded Alexia. "I guess I just carefully prepared for my job search." "Ahhh . . . could you be a bit more specific for those of us who have no job offers?" asked Joan. "After researching various organizations,

### Creating a NPV & IRR Spreadsheet

Suppose you own a concession stand that sells hot dogs, peanuts, popcorn, and beer at a ball park. You have three years left on the contract with the ball park, and you do not expect it to be renewed. Long lines limit sales and profits. You have developed four different proposals to reduce the lines and increase profits. The

### Fiscal Outlook and Impacts on Budgeting

This article in Governing looks at fiscal outlook for state and local governments. Elected officials have to review this type of information so they can properly plan for the future. http://www.governing.com/blogs/by-the-numbers/gao-states-local-governments-fiscal-outlook-report.html How would this information impact your

### Payback Period of Purchase

Can you please help me find the payback period for the following? I am considering the purchase of new Garland brand energy-efficient refrigerators for a chain of 60 restaurants. These new refrigerators will cost \$10,000 each and will have useful lives of five years before they will need to be replaced. Installation of the tota

### econmcs: Time value of money

4. Keeshawn invests \$20,000 in a stock fund that has been paying 8% compounded quarterly for the past 10 years. Assuming that the fund continues to perform as it has for the past 10 years, how long will it take for Keeshawn's money to double? 5. Willie plans to invest \$4,000 in a bond fund that has been returning 7% compound a

### Calculating fixed and variable cost

In a slow year, Deutsche Burgers will produce 2.0 million hamburgers at a total cost of \$4.4 million. In a good year, it can produce 4.4 million hamburgers at a total cost of \$5.0 million. What are the variable and fixed costs of hamburger production? (Enter your answers in dollars not in millions. Round "Variable cost" to 2 dec

### Economic Variables: Average Income

This is the first component that discusses the decision-making process of monetary policy and analyzes how a particular recommended policy will affect the U.S. economy. In this Part 1, you will collect data and information about the current economy and submit a short background report in a document in three to five pages.

### Calculating future and present values of ordinary annuities

Problem 1 If interest rates are 8 percent, what is the future value of a \$400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods. - Recalculate the future value at 6 percent interest and 9 percent interest. Problem 2 If interest rates are 5 percent, what is the present value of a

### Archer Daniels MIdland Company Purchase

Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of \$12.10 million. This investment will consist of \$2.90 million for land and \$9.20 million for trucks and other equipment. The land, all trucks, and all other equipment is expected t

### Present value of the cash flow streams

A large networking company wants to incorporate your software into their systems and is offering to pay you \$532,000 today, plus \$532,000 at the end of each of the following six years for permission to do this. If the appropriate interest rate is 8 percent, what is the present value of the cash flow stream that the company i

### Future value of investment cash flows

Trigen Corp. management will invest cash flows of \$347,027, \$1,244,578, \$1,416,890, \$818,400, \$1,239,644, and \$1,617,848 in research and development over the next six years. If the appropriate interest rate is 9.98 percent, what is the future value of these investment cash flows six years from today? (Round answer to 2 decimal

### Compound interest calculations

Find the present value of \$4,100 under each of the following rates and periods. (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.) a. 8.9 percent compounded monthly for five years. Present value \$ b. 6.6 percen

### Time value of Money, capital budgeting, audit report

Question 1 Indicate whether the following are true or false and briefly motivate your answer. a) Time value of money is equal to inflation plus interest b) Fixed cost remains the same even if variable cost and production increase. c) High risk financial instruments are likely to generate high returns d) Annualised compoundi

### Time Value of Money: Future and Present Value, Payment Amounts, Interest Rates

For the below time value of money problems, complete using formulas in Excel on each separate tab. Mention any assumptions and support each decision made. Question One: You deposited \$15,000 today and the interest rate is 8% annually. How much will you have in nine years? Question Two: Tiff will receive a graduation gi

### Present Value at Various Interest Rates

Wainright Co. has identified an investment project with the following cash flows. Year Cash Flow 1 \$ 840 2 1,170 3 1,430 4 1,575 If the discount rate is 9 percent, what is the present value of these cash flows? (Do not round intermediate calcul

### Riordan's Current Trends, Issues in Compensation, and Future Trends

Is anyone familiar with this virtual organization to assist with this? Thanks - Evaluate Riordan's current trends, issues in total compensation, and prediction of future trends - Riordan's wage management process and rationale

### Budgeting for Future Years

Part of your new accountant's role will be involved with budgeting for future years. So you can understand where she is coming from, so you ask her to talk about the following with you: Explain how revenue sources are planned and budgeted in nonprofits. What are some typical key assumptions that must be made in the "revenue

### Difference Between the PV and FV of an investment

You just received \$225,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 25 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 10.5 percent rather than just 8 percent

### Offer Value Per Share and Offer Premium

Garth's Micro Brewery, whose shares are currently trading at \$40 per share, is considering acquiring Wayne's Beer Bottling Co. You have compiled a group of comparable transactions within the beer bottling space and have calculated that since 2004, acquisitions similar (or comparable!) to the one Garth's is currently considering

### Calculations of the Time Value of Money

1) You invest \$20,000 today, at a rate of 10% compound quarterly. What will the investment be worth at the end of year twenty? 2) You are offered an annuity that will pay you \$9,000 at the end of each of the next 10 years. What is the maximum amount you would be willing to pay today for this annuity? (Assume you require a

### Equivalent Annual Rate

I have a discussion that deals with exercises in determining Equivalent Annual Rate (EAR.) This is closely related to the time value of money and deals with how the frequency of compounding of the interest rate affects the value calculation. The result is not the same when interest is compounded quarterly, for example, as it is

### Analyzing Capital Investments

Visit the website of Johnson Controls Inc. located at http://www.johnsoncontrols.com, and review its 2012 financial forecasts. According to the forecasts, Johnson Controls will increase capital investments to approximately \$1.7 billion. More than 70% of the company's capital expenditures in 2012 are associated with growth and

### Discounting future cash flows for impairment

Please discuss the issues of discounting and not discounting future cash flows for impairment and how it impacts the calculation of impairment as well as how this calculation impacts the balance sheet. Additionally, are there ethical considerations related to discounting of future cash flows for impairment?

### Calculating the interest rates in the given case

Warren has \$2000 today. Using the Time Value of Money equations, not Excel functions, do the following using compound interest: a. Determine the interest rate for Warren if \$2,500 is returned one year later. b. Determine the rate if \$2,500 will be returned in 5 years?